Open Access Research Article
THE IMPACT OF EMERGING TECHNOLOGIES ON COMPETITION LAW
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THE IMPACT OF EMERGING TECHNOLOGIES
ON COMPETITION LAW
AUTHORED BY - HANAH VARGHESE
Abstract
Competition
law is an ever-present force, constantly evolving and introducing new
dimensions over time. Since the enactment of the Indian competition act in
2002, amendments have been necessary to keep up with the changing dynamics
driven by the market economy. A prime example of such transformation is the
revolutionary impact of blockchain technology, which has significantly altered
various markets. As a result, markets have become more intelligent, efficient,
and intensely competitive. This shift has also given rise to dominant players
that cannot be disregarded in the digital market landscape. In response, the
international legal framework has introduced laws to regulate digital markets.
However, upon closer examination of Indian legislation, it becomes apparent
that there is a lag in keeping pace. The decentralized and transparent nature
of blockchain's distributed open ledger system poses new challenges related to
privacy and raises concerns about collusive practices. Thus, it becomes
imperative to establish legislation that governs these aspects and ensures a
fair and secure environment in the digital market space.
Key Words: Blockchain, competition, decentralized network, technology,
data, privacy, market, collusive agreements.
Introduction
The digital era has ushered in a
plethora of new technologies and innovations, necessitating legislative changes
to keep pace with the evolving landscape. Among these advancements, blockchain
stands out as one of the most transformative technologies to emerge in the late
2000s, exerting a profound impact on currencies, record keeping, sharing of
information, contracting and verifying identities today[1].
Its rapid growth and adoption cannot be underestimated. The World Economic Forum predicts that by
2027, around 10% of the global gross domestic product will be stored in
blockchain[2], igniting unparalleled
excitement about its boundless possibilities.
These developments evoke a mix of
fascination and concern. On one hand, there is immense enthusiasm for the
infinite potential of blockchain. On the other hand, there is uncertainty
surrounding its future as an emerging technology. Various institutions, such as
the Organization for Economic Cooperation and Development (OECD), have
recognized the need to address the antitrust challenges posed by blockchain[3].
This article aims to address the following key questions:
Firstly, it seeks to delve into the
enigmatic nature of blockchains. This decentralized network has experienced a
technological boom in the past decade, yet its intricacies remain understood by
only a few. Gaining a deeper understanding of blockchain is crucial for effective
governance.
Secondly, from the perspective of
competition law enforcement, this paper deems it imperative to explore
blockchains in their various forms, including smart contracts, which have led
to a gradual increase in blockchain litigation. The author aims to highlight
the concerns associated with this phenomenon.
Lastly, the article acknowledges the
effectiveness of the proposed Digital India Act in regulating entities within
the digital market. However, only time will truly reveal the act's sufficiency.
To provide context, the author offers a comparison with complementary
legislations in the United States and Europe. This comparative analysis will
shed light on the strengths and weaknesses of the Indian legal framework.
1. What are blockchains?
A blockchain can simply be understood
as an open and distributed ledger recording all sorts of transactions between
users[4]. It
uses a peer to peer network to connect the computers of all the blockchain
users. Blockchain is decentralized, meaning no entity controls the transaction
process; and the work is divided among several computers[5]. All
blockchains aim to create a database system in which agents or institutions
record and maintain information, with no single entity exercising persistent
market control or power[6]. Introduced
by Satoshi Nakamoto, it gained relevance around 2008, with the boom of the bitcoin.
The paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” released by Nakamoto
created the first modern blockchain, the cryptocurrency[7]. In
his words, Satoshi Nakamoto stated that blockchain is based on “cryptographic
proof instead of trust”[8]. The
next major success attributed to blockchains is the Ethereum technology
introduced in 2015. It is introduced as a platform for running various
decentralized applications. It allows users to record assets such as slogans. A
hallmark in the history of the blockchain which led to the growth of many other
applications used today such as NFTs and smart contracts.
Blockchain is a type of Distributed
Ledger Technology (DLT), a data archive shared by several entities which operate
on a distributed network of sites, countries or institutions[9]. This
data is structured into blocks and each block contains a series of transactions
or a bundle of transactions. Each time new information is received following a
transaction, it is added to the existing chain, which forms a chain-like
structure of blocks (hence, the name blockchain). These blocks are recorded
with an immutable cryptographic signature called ‘hash[10].’
The hash stores the transactions in a secure and unique format to prevent
tampering. The hash must not allow tracing of the text of each block in the
chain. This level of security provided by blockchains makes it desirable in
many industries. The blockchain uses a process of verification to prevent
frauds and attacks in the network by using a process of verification passed on
the proof of work (PoW)[11]
It revolves around the idea that before being allowed to use the service, the
author must first solve a very specific work puzzle (which is often a complex
mathematical problem)[12].
The nature of blockchains allows
absolute anonymity to be achieved by using a pseudonymous address. It is a unique
string of characters representing a user’s identity on the blockchain. This
identity may not be related to a person’s real-world address, thereby
maintaining his anonymity. This ensures that the privacy of the user is
protected making it difficult to trace the activities of a particular user on
the blockchain back to their real-life identity.
Blockchain is deeply beneficial in
reducing costs and delivering more business benefits. It reduces significant
work overload by executing smart contracts which reduces paperwork and errors. Streamlining
processes reduces time, increases efficiency and omits third party intervention[13].
Finally, blockchain can be used as a
means to monitor colluders. It allows transparency as information is freely
available on the web. This allows law enforcement to keep a watchful eye to prevent
any illegal activities from taking place. From a competition aspect, law
enforcement can detect colluding and predatory behavior of enterprises and
penalize them before it leads to losses in the market.
2. Is blockchain a cause of worry
from a competition perspective?
With the introduction of any
technology, the pros and cons must be weighed to ascertain the effectiveness of
the technology. While blockchain has many positives, this untapped technology
could also have possible negative impacts.
2.1. Can lead to collusive agreements
Seven enterprises create a cartel to
divide the relevant market between them. They set up numerous smart contracts
that are accessible to all companies and ensured that the colluders comply with
them. The smart contract being a public blockchain is accessible to all
companies on the market. They use this information to create the most
profitable agreement possible, and to ensure that none of the participants sell
products in a territory that has not been allocated to them.
This illustration reflects how smart
contracts can form collusive agreements. Collusive agreements are a type of joint
profit maximization strategy that is deliberately put in place by competing
firms that might harm consumers[14]. Collusive
practices allow firms to exert market power that they otherwise would not have,
and artificially restrict competition and increase prices[15]. Collusion
may be overt, in which firms agree on price, output, and other decisions aimed
at achieving monopoly profits; or tacit, which is an unwritten, unspoken
understanding through which firms agree to limit their competition[16]. The
collusive nature of the firms can also form a cartel.
A smart contract can be a hub for
collusive contracts. It is a programmable code executed after meeting certain
pre-defined terms and conditions. It is based on the ‘if and then’ logic in
which parties execute the smart contract when they agree to the pre-defined
terms and conditions. It can be digitally enforced by the nods, which can
verify and enforce the performance of the contract[17]. This
technology allows the users to simply insert the relevant information into an
already pre-defined agreement. Companies can use the medium of blockchain to exchange
information among them. As a result, commercially sensitive information about
the prices, sales, discounts etc., are accessible to all due to the decentralized
nature of the blockchain. The US Supreme Court has held that enterprises have
entered into an illegal agreement when ‘the possibility of independent action
is excluded’ and ‘when they have a conscious commitment to a common scheme’[18]. When
two enterprises have agreed to create and use a blockchain for an illegal
purpose it forms a cartel which is prohibited.
This disclosure of sensitive
information is prone to misuse by competing firms. In the case of Builders
Association of India v. Cement Association of India and ors[19],
it was held that the availability of commercially sensitive information to any
competing firms could result in anti-competitive agreements as provided under
section 3 of the Act[20]. They
could form an anti-competitive agreement with respect to the production,
supply, distribution, storage, acquisition, or control of goods/ services which
will lead to an appreciable adverse effect on competition (AAEC) in the
relevant market. The open and permissionless nature of public blockchains itself
can act as a cartel[21].
It can discourage small companies from
growing in the relevant market as their information is accessible to all.
Hence, the very creation of a public blockchain can be construed to form future
anti-competitive practices. Cartelisation in
Industrial and Automotive Bearings[22] emphasized that Section 3 of the
Competition Act, 2002[23] prohibits contracts that are likely to cause
an appreciable adverse effect on competition. This simply means that public
blockchains that are likely to form a cartel are also prohibited.
However, the American and European jurisprudence differ on this aspect. The
Horizontal Guidelines of Europe[24] provide that the genuine exchange of public information is unlikely to
cause an infringement of Article 101. When the agreement reduces the parties’ decision-making
independence due to the influence on the market conduct, it is said to cause an
AAEC. Therefore, when the information shared on the blockchain is likely to
restrict independent decision-making power, it is said to infringe Article 101.
European jurisprudence also held that public information sharing can only
constitute a cartel when the information concerns future prices.
2.2. Questions of Privacy in big data
A large retail company with a network
of hypermarkets, discount stores and grocery stores, uses big data to improve
operational efficiency. They collect consumer data about the purchases,
locations, information about social networks and analyze this information using
Big Data to send personalized recommendations on various social networks. The
dominant position of the retail company can be attributed to the use of big
data.
This illustration reflects how the personal
data of consumers can be used by dominant market enterprises to maintain their
position. Big data in the market use blockchain networks to store the personal
data of consumers. Therefore, questions of privacy in anti-competitive
behaviour must be raised.
One of the biggest innovations in
recent times, the blockchain has the ability to transform the way businesses
are conducted today. The internet made the digital transfer of information
available on a decentralized network while the blockchain makes the transfer of
assets possible by providing a decentralized database for recording
transactions. It, therefore, collects massive amounts of data in huge data sets
commonly referred to as ‘big data’. Big data guarantees data-driven innovation,
allowing companies to improve upon their products and services and targeting
consumer needs[25]. Big
data analytics extracts useful information and patterns from the dataset, which
are then used for different purposes[26]. They
forecast market needs which help in sending personalized recommendations.
However, due to the enormous data
utilization and data transmission, big data security is a major challenge. There
is a high risk of a data breach or tampering of the records while depending on
external, third-party services such as cloud for the security of the data. This
can be tackled by blockchains. The encrypted and decentralized storage of the
data by the blockchain can ensure the security of the data[27]. A
public blockchain, which is also called a ‘permission less’ or ‘open
blockchain’, is a blockchain that anyone can read and which can be used to
propose new transactions[28]. This
kind of blockchain act as a platform to store a large number of transactions.
Therefore, public blockchains can
store the big data of consumers since the data is in an encrypted form. But,
the nature of public blockchain is such that it is prone to data breach. Anyone
can access the public blockchain without ‘even’ entering the blockchain[29]. The
public blockchain is based on anonymity and consensus mechanism reached through
built-in security (proof of work or proof of stake[30])
which makes it very difficult to trace the transactions. However, despite the
promises of blockchain, it is still a huge competition concern that needs to be
addressed immediately.
3. Whether the competition framework
of India is suitable
to tackle blockchain?
In the late 2010s, the importance of
privacy was raised all around the world. In India, privacy was designated as a
fundamental right guaranteed under Article 21 of the Constitution[31].
This led to many laws that regulate privacy of the individuals. Even in
competition law, a new dimension of anti-competitive behaviour was observed,
with big Tech Giants like Facebook (now Meta), Apple using personal data of
consumers as a method to establish dominant market. An example would be
Facebook acquiring Whatsapp[32]
and establishing a dominant market that escaped the existing competition law framework[33].
The antitrust authorities were primarily focused on the quantifiable aspect of
the merger, such as the material impact the merger would have on the market.
They did not focus on the importance of privacy in the digital economy which
led to the greenlighting of the acquisition[34]. These
data giants thus use their platforms to exploit their market power by
extracting the personal data of the consumers.
In concerns of privacy, the General Data
Protection Regulation (GDPR) is the primary legislation that seeks to safeguard
the privacy of individuals. Blockchain that expressly records the personal data
of individuals are subject to the laws governing personal data[35]. However,
with respect to the rigorous method of securing privacy under blockchain, there
are no legislations in place. As an emerging technology, blockchain is still in
its nascent stage and proper legislation is required to protect the interests
of the users.
The Indian Competition Act, 2002 is
still in the developing stage with respect to the digital markets. It is still
deliberating on the passing of a Digital Markets Act for the regulation of
growing digital economy. The Standing Committee has recommended the passing of ex-ante
regulations to regulate the competition in digital markets and deter
possible monopolisation[36]. Under
this framework, the leading market players with ‘significant influence over competition
in the digital ecosystem’ will be designated as ‘Systematically Important
Digital Intermediaries’ (‘SIDI’). These SIDI’s will have to comply with the
predetermined set of obligations and prohibitions[37]. All
potential mergers and acquisitions of these SIDI’s along with regulation of
their internal advertising, data, and search policies are proposed by the
Standing Recommendations[38].
However, whether the proposed Digital
Markets Act will apply to blockchains and all emerging technology is a question
to be deliberated only after the passing of the Act. Currently, there are no
legislation that comprehensively address blockchains as a whole. With the
gradual increase in blockchain litigation around the world, it is important
that the laws keep with the changing atmosphere.
Conclusion
With the growth of technology, the digital
economy is rapidly progressing in all spheres of life. Between 2014 and 2019,
the digital economy (which includes digital technologies, products and services
across different sectors) grew 2.4 times faster than the Indian economy as a
whole. These statistics indicate a positive impact on the future of many
emerging technologies. This could lead to the amendment of the existing competition
act. However, this is only possible after an in-depth understanding of
blockchain technology.
Blockchain is still a new and little-explored
territory that needs proper research and understanding. It is still in its
nascent stage and its uses still need to be explored. It has the potential to
make the market extremely competitive due to its cost-effective and time-saving
applications. This will make the data-driven economy extremely complex. However,
it also leads to negative outcomes as well. Many collusive agreements will be
created as a result of the data driven economy, with an increase in their
profitability. In such a state, proper legislation and compliance have to be put
in place to regulate these entities.
With the advent of these emerging
technologies, the nature of the competition act is likely to change as well. It
will have to adopt a more progressive and pragmatic role to keep up with the
explosion of collusive agreements. Many new dominant players will also enter
the market and it is advised that the competition regulators be armed with adequate
laws to govern these players.
[1] Chinmaya Goyal, Jincy Francis,
Navneeraj Sharma, Natasha Nayak and Sakshi Gupta, Discussion paper on
blockchain technology and competition, Ernst and Young and Competition
Commission of India, April 2021
[3] OECD Competition Division,
Blockchain and Competition Policy, OECD (June 2018)
[4] Sebastien Meunier, Blockchain 101:
What is Blockchain and how does this revolutionary technology work? Transforming
Climate Finance and Green Investment with Blockchains, Academic Press, 2018,
Pages 23-34,
[5] Ibid
[6] Lin William Cong and Zhiguo He, Blockchain
disruption and smart contracts, NBER Working Paper No. w24399, 2018
[7] Lucas Waldem Zanforlini,
Blockchain and competition law, Threats and opportunities of the new disruptive
technology, Master’s thesis in European and International Trade law, Lund
University: School of Economics and Management, Spring 2021.
[8] SATOSHI NAKAMOTO, BITCOIN: A
PEER-TO-PEER ELECTRONIC CASH SYSTEM (2008), https://bitcoin.org/bitcoin.pdf
[https://perma.cc/TGE8-H4DQ].
[9] Id at 7.
[10] Sebastien Meunier, Blockchain 101:
What is Blockchain and how does this revolutionary technology work?
[11] Marcella Atzori, Blockchain
Technology and Decentralized Governance: Is the State Still Necessary? 6 J.
GOVERNANCE & REGULATION 45 (2017)
[12] Giovanna Massarotto, From Digital
to Blockchain Markets: What Role for Antitrust and Regulation (January 26,
2019). Available at SSRN: https://ssrn.com/abstract=3323420 or http://dx.doi.org/10.2139/ssrn.3323420
[13] Blockchain and Distributed Ledger
Technology, https://www.geeksforgeeks.org/blockchain-and-distributed-ledger-technology-dlt/
[14] OECD, Algorithms and Collusion:
Competition Policy in the Digital Age, 2017
[15] Massimo Motta, Competition Policy,
Theory, and Practise, Cambridge University Press, 05th August, 2015
[16] Libby Rittenberg and Tim
Tregarthen, Economic Principles v.1.1,
[18] Monsanto v. Spray-Rite Serv.
Corp., 465 U.S. 752, 768 (1984).
[19] Builders Association of India v.
Cement Association of India and Ors., Case No. 29 of 2010
[20] Section 3, Competition Act, 2002.
[21] Dr. Thibault Schrepel, COLLUSION
BY BLOCKCHAIN AND SMART CONTRACTS, Harvard Journal of Law & Technology
Volume 33, Number 1 Fall 2019
[22] Cartelisation in Industrial and
Automotive Bearings, Suo Motu Case No. 05 of 2017
[24] Guidelines on the Applicability of
Article 101 of the Treaty on the Functioning of the European Union to
Horizontal Co-operation Agreements, ¶ 92, COM (2011) C 11/1 (Jan. 14, 2011).
[25] Pedro Gonzaga and Ania Thiemann,
Big Data: Bringing Competition Policy To The Digital Era, Organisation for
Economic Cooperation and Development, DAF/COMP(2016)14 (27 October, 2016)
[26] Deepa N, Quoc-Viet Pham, Dinh C.
Nguyen, Sweta Bhattacharya, B. Prabadevi, Thippa Reddy Gadekallu, Praveen Kumar
Reddy Maddikunta, Fang Fang, Pubudu N. Pathirana, A Survey on Blockchain for
Big Data: Approaches, Opportunities, and Future Directions, arXiv:2009.00858v2
[cs.CR] 5 Feb 2021
[27] Ibid
[28]Dr. Thibault Schrepel, Is
Blockchain the Death of Antitrust Law? The Blockchain Antitrust Paradox, Georgetown
Law Technology Review, 3 GEO. L. TECH. REV. 281 (2019)
[29] Dylan Yaga et al, ‘Blockchain
Technology Overview, ‘ NIST Interagency/ Internal Report 8202 (2018): 44
[30] Proof of stake means that the creator
of a new block is defined in a deterministic way, for example depending of its
wealth (the so-called stake) IBM, BLOCKCHAIN FOR DUMMIES 16 (John Wiley &
Sons, 2 ed. 2018).
[32] Leonor Bentes de Oliveira Costa, Mergers
and Acquisitions: The Facebook and WhatsApp Case, April 2018.
[33] Maurice E. Stucke, The
Relationship between Privacy and Antitrust, Notre Dame Law Review, June 2022
[34] Ibid
[35] Pritesh Shah, Daniel Forester et
al, Blockchain Technology: Data Privacy Issues and Potential Migration
Strategies, Thomson Reuters, 2019.
[36]Fifty third report,
Anti-Competitive Practices by Big Tech Companies, Standing Committee on Finance,
December 2022.
[37] EX-Ante Regulation- Should India
Sprint or Thread with Caution? AZB Partners, 28th April, 2023.
Available at https://www.azbpartners.com/bank/ex-ante-regulation-should-india-sprint-or-tread-with-caution/
[38] Naval Chopra and Yaman Verma et
al, Does India require ex- ante competition regulation in digital markets?,Shardul
Amarchand Mangaldas, 3rd April, 2023. Available at https://www.amsshardul.com/insight/does-india-require-ex-ante-competition-regulation-in-digital-markets/
Article Information
THE IMPACT OF EMERGING TECHNOLOGIES ON COMPETITION LAW
Authors: SHANAH VARGHESE
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/07/07
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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- License CC 4.0
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